Why is Obamacare so expensive?

Obamacare is expensive for one reason…

…it ended underwriting; the ability to deny coverage to people with health conditions. Unless Congress is willing to allow underwriting, nothing they will do will reduce premiums in the short run and it won’t contain runaway health costs.

This leaves us with the problem where there are millions of hardworking Americans who make too much money to get a subsidy on the exchanges, but not enough money to afford the insurance. A family of four earning $90,000 a year has to pay 100% of the cost of a plan and the average cost of a plan is about $20,000 a year. After taxes, mortgage, car payments, food, gas, electric, etc. that family doesn’t have enough left to pay health insurance. Presently, health plans are not affordable for families earning up to $120,000 a year depending on where you live.

Health costs have risen faster than our economy for decades and are forecast to run at least 1.2% higher than the growth of our GDP. This means every year, more and more Americans won’t be able to afford coverage. It also means that more and more employers will reduce benefits of the plans they offer and drop coverage, leaving more people under and uninsured.

Ultimately, we will end up with Medicare for everyone and we will let the government directly negotiate reimbursements with doctors, hospitals and pharmaceutical companies. Its truly not if, but when, as there are no “marketplace” solutions that can really fix the problem.

AND NO, THE FOLLOWING WON’T WORK:

Writing Policies Across State Lines

Ridiculous, anyone who says this doesn’t know what they are talking about as there is no lack of carriers with approved policies in every state. If you don’t have the deepest discounts with doctors and hospitals, you can’t compete – which is why many exchanges are now left with only 1 or 2 health plans.

Health Savings Accounts or Consumer Directed Healthcare

I’m a big fan of getting people to become good consumers of their healthcare, but there are two key problems with this approach being a solution:

  • If I’m in a pool with people who don’t lead healthy lifestyles (aka the vast majority of Americans) then I’m going to be paying a lot for the high deductible policy.
  • Also, the vast majority of doctors and hospitals still won’t provide anyone with their prices, so you can’t comparison shop your care. BTW, the most common reason they say they can’t give you a price is that its too complex. And that is quite simply a big fat lie as the contracts they have with insurance companies are all fixed rate pricing. This means your Blue Cross plan pays your hospital X amount for every day your in the hospital or they pay a fixed fee to treat you for certain types of care.

Wellness Programs

Again, these work, but the people who tend to participate are already fit. These can reduce long term trend, but they won’t reduce costs. It has to be a part of any solution, but its not a silver bullet.

Medicaid Block Grants

This strategy will just reduce the number of people who are covered, cause more uncompensated care, and cost people who get coverage more money. No doubt there will be some creative ideas that will have impact, but at the end of the day the level of funding is less than the amount provided to expand Medicaid. If health reform keeps Medicaid funding level with current expenditures and increased it for all the states who did not expand Medicaid, it would be a good thing and could be positive.

Eliminating the Employer Deduction for Health Insurance

This won’t only not control health costs, it will hurt middle america as employers will either drop coverage or significantly reduce the amount they pay toward insurance. Putting a cap on the deduction allowed will just make employer’s reduce benefits as the costs rise to stay under the cap, again hurting middle america as the costs just shift to those consumers.

Malpractice Reform

This strategy will be welcomed by Doctors across the country but it won’t do anything more than give health plans a very small one time savings. First, it won’t eliminate all settlements and lawsuits because most malpractice settlements and awards have merit. Second, the cost of suits is a very small part of the cost of medicine. Finally, practicing so called “defensive medicine” is not a thing as most health care providers use “best practices” and that is generally why doctors order up additional tests. Yes, it happens, but it’s not as prevalent as people think and doesn’t add up to a lot in relationship to the $3.2 Trillion we spend on healthcare each year.

Allowing Trade Associations to Form Purchasing Groups

This can reduce some overhead when they negotiate with insurers (a one time savings), but it can’t change the long term increases in health care spending.

 

Bottom line, we will be tinkering around the edges until the cost for care is so high that a majority of Americans demand the government to “take over healthcare”.

It’s only a matter of time.

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